Transportation

Sector Overview

Opportunities

Laws and Regulations

Investment Incentives

Transportation Sector Profile PDF

Sector Overview

Transportation facilitates the movement of people and goods to the location of services and facilities. Its synergies create jobs, commercial opportunities, and industrial hubs. Nepal’s transportation sector is greatly in need of development. But its geographical location vests the nation with potential and provides opportunities.

At first glance, the nation’s potential is not evident. Nepal is a land-locked country. Its nearest outlet to the sea, Kolkata, India, is more than a thousand km away. Because of the nation’s often difficult terrain, road transport and aviation are the most popular of very few modes of transportation, the others include ropeways and one railroad4. However, currently ropeways are developing as tourist attraction rather than means for transportation.

During the past five years, Nepal’s transport sector has grown at an average rate of 6.9 %. Currently the sector accounts for 10.6% of Real GDP. Because transport infrastructure development promotes economic growth and provides and promotes employment, it also contributes to improved living standards. Today the transportation industry directly provides employment to almost 20,000 people. Over the next five years, the government hopes to mobilize US$ 8.2 billion for road infrastructure, rail connectivity and transport sector management. The country has total road network of 80,078 km. Out of 75 total, only 67 district head quarter’s roads are linked with all-weather roads. Most of these work only as basic road connectors and require regular maintenance, upgrading, and further road connection to other districts. The other means of transportation, Nepal’s railway line has total length of 57 km out of which only 5 km is currently operating. The country has 1 international airport and 56 domestic airports.

In the transport sector, Nepal must market itself as a profitable transit destination for goods coming from India. In addition, Nepal can become transit route connecting India and China. Annually, this could attract as much as US$ 70.25 billion (trade between India and China, 2014) per year of business through Nepal. A trade route through Nepal could also be extremely valuable for the two principals, taking into account that the elevations of border crossing points in Nepal are lower than those on the India-China border.

Institutional ArrangementPolicy Level

Ministry of Physical Infrastructure and Transport

Ministry of Federal Affairs and Local Development

National Planning Commission

Ministry of Culture, Tourism and Civil Aviation

Regulatory level and implementation level

Department of Road

Department of Local Infrastructure

Development and Agriculture Roads

Department of Railway

Department of Transport Management Civil Aviation Authority of Nepal

Road Board Nepal

Important Links

Opportunities

ROADS
Access to road service is a basic requirement for economic development and ease of life. Nepal’s road network is growing but there is an enormous need for more investment. Because Nepal is landlocked, it relies on its transport links with China and India for trade. But there is only one dependable road link between the Kathmandu Valley and India at present. As such, development of a new routes connecting both India and China shall bring enormous economic benefits. Highways, bridges, tunnels are all crucial to Nepal’s economic growth and development. Government of Nepal is committed to improve the country’s road connectivity. It has adopted a decentralised approach to efficiently utilize the road network. The country has total road network of 80,078 km, comprised of 26,935 km roads constructed and being maintained by the Department of Roads (DoR) and 53,143 km roads constructed by the government local bodies. The quality and quantity of roads in Nepal are low as compared to countries with similar income. Nepal’s road density is one of the lowest amongst the South Asian countries. This shows the need to prioritize investment in the development of road infrastructure.

Initiatives taken by GON
In 2016 the government budget committed to the development of strategic roads, bridges, proactive maintenance and road safety. The government is specifically seeking PPPs in the upgrading and the development of new highways, developing international trade routes, associated infrastructures, and improving major district road networks.

Some Important Initiatives
Recently, the government initiated the following major road projects.

The Naghdunga Tunnel (Sisne Khola to Naghdunga total 2.5 km) is the first tunnel project in road sector. The Japanese International Cooperation Agency (JICA) has agreed to provide assistance. The estimated construction cost for the project is US$ 150 million.

The Banepa-Sindhuli-Bardibas Road (160 km) connects Kathmandu to Eastern Terai. The road has been built with grant assistance from Japan. The road project has been divided into four sections Bardibas-Sindhuli (37 km), Sindhuli Bazaar-Khurkot (36 km), Khurkot-Nepalthok (37 km) and Nepalthok- hulikhel (50 km). The highway was constructed at the cost of over US$ 210 million.

A Chinese construction contractor has received the award to widen and upgrade the 27 km Kathmandu’s ring road section. This will upgrade the existing 2 lane road to 8 lanes along with bicycle lanes and footpaths on both sides Strategic Road Network (SRN)

The road infrastructure in Nepal includes the Strategic Road Network (SRN) at central level. It is the principal artery of Nepal’s road system and the Department of Roads is responsible for its development and maintenance. The network includes national highways and feeder roads. Out of total 26,935 Km SRN Nepal’s road network 11,349 km is paved, 6,192 km is graveled, and 9,394 km are earthen (fair) weather roads. Nearly half of Nepal’s SRN, primarily a two- lane roads which remains unpaved. The poor quality of the road means that it cannot currently support fast travel. Upgrading all of the SRN remains a priority.

Local Road Networks (LRN)
The Department of Local Infrastructure Development and Agricultural Roads, together with Local District Development Committees are responsible for Local Road Network (LRN). The LRN consists of district roads, urban roads and rural roads including village access roads and village trails.

District roads are arterial roads linking two district headquarters or the main trading centres.

Urban roads are roads serving urban municipalities and are administered by Municipal administration.

Rural roads are managed by the Department of Local Infrastructure Development and Agricultural Roads (DoLIDAR). These are mainly unimproved roads which generally pass through the SRN and urban roads.

Village Access Roads connect district roads and villages. They also include firm roads, and roads leading to rivers.

Village Trails are non-motor able trails and are used to connect various parts of villages.

North-South Corridor
The North South Corridor Road shall provide easy access and improved mobility between Terai, the Hills and Himalayan Region. By connecting India and China this road will facilitate the easy movement of goods and people. Different trade and transit corridors are planned and being developed from North to South. Out of this, corridor from Birgunj-Naubise-Kathamndu-Tatopani-Nyalam (393km) (which falls in the central region of the country) is already operating. Initiatives are being taken to upgrade this corridor. Likewise the track of the corridor from Birgunj-Galchi-Rasua-Syafrubesi (340 km) has opened recently. Among the 8 North South Corridors certain portion of some of the corridors such as the Koshi corridor, Kali- Gandaki corridor and Karnali corridor are prioritized to be constructed by the government.

Koshi Corridor (Eastern)
This project intends, within two years to open a track of the Koshi Corridor Road connecting Khandbari with Kimathanka and paving it within five years. This road will start in Basantapur and connect to Kimangthanka on the northern border via Terathum, a total distance of 195 km. The estimated project cost of US$ 58.5 million will be funded by the national budget.

Kali-Gandaki Corridor (Western)
This project is being constructed by the Nepalese Army and intends to construct 225 km road from Gaindakot to Baglung, as well as a 190 km road from Baglung to Korala of the corridor. In addition, the Ramdi-Jomsom section (202 km) of Kaligandaki Corridor Road will be paved and the Jomsom-Korala section (100 km) will be graveled within three years. When completed, this will be the shortest route between India and China. The corridor will also pass through places with religious, historical and tourism values in the Dhaulagiri, Palpa, Mustang and Gulmi districts. The work is estimated to cost more than US$ 254 million.

Karnali Corridor (Mid-Western)
Under this project, a total of 288 km of road will be constructed in two parts. The first part will be from Khulalu to Simikot while the second will connect Hilsa and Simikot. Although the project began in mid-2008 no completion date has been set.

Mid- Hill Highway / Puspalal Highway
The Mid-hill Highway, one of the National Pride Projects, travels east to West across the country through mid-hills/mountains. It will connect Chiyabhanjyang of Panchathar District in the East to Jhulaghat in the Baitadi District in the Far-west, a distance of 1776 km. In total it will connect 24 districts, 225 VDCs and directly affect the lives of 7 million people. The road is expected to contribute to the nation’s economic, cultural, societal and educational improvement. Its cost is projected to be US$ 430 million and completion is projected to require 5 years. The Government’s 2015/16 budget has allocated US$ 28 million to the project.11 The government is planning to develop ten model cities along the Midhill Highway. Such development may be facilitated by way of PPPs.

Kathmandu- Terai/ Madhes Fast Track
Another National Pride Project, this one a six-lane road will start in Kathmandu and end in Nijgadh. Already, the Nepal Army has opened single lane of this highway. The World Bank has estimated that the project will cost US$ 1.5 Billion. The government intends to finance and build the project itself. Nijgadh is closer to the dry port at Birgunj which supplies 40% of the total goods to Kathmandu. The fast track road will reduce the transit time from Birgunj to Kathmandu by 4–5 hours and the distance by 155 km. The fast track is also focused to facilitate the second international airport so, it will join the Mahendra Highway (East West corridor) at Nigadh, where an international airport is planned to be built. This improved trade corridor between Terai and Kathmandu will significantly improve trade between Nepal and India and can also be used for Chinese goods originating from the Tibet Autonomous Region.

Kathmandu - Kulekhani - Hetauda Tunnel Highway
This proposed project includes a 58 km highway with three tunnels. According to the Detailed Plan Report (DPR), 90 % of the project will lie in the Makwanpur district. The expressway will run from Balkhu of Kathmandu to Hetauda. The detailed design and EIA of the project has been completed. The existing Hetauda-Mugling-Kathmandu highway is one of the busiest road corridors in the country. Currently it runs 227 km and requires a travel time of approx. 6-8 hours. In contrast, the proposed highway will connect Kathmandu with Hetauda in an hour. The government has issued a license to develop the project on a BOOT (build, own, operate and transfer) basis. According to the agreement, the project will be handed over to the government after a period of 30 years. In 2012 the project cost was estimated to be US$ 348 million. Although this is a high priority project, to date, the licensee has failed to submit convincing financial closure report (which was due 1 year after signing the concession agreement) to show its ability to generate required funds to complete the project. The government may consider developing the project as a PPP.

Hulaki Marga / Postal Highway
The Postal Highway, also a National Pride Project, is 1,792 km long and will connect the eastern part of Nepal to the far western part. This highway will be located near the Indian border, parallel to the present Mahendra Highway running through terai districts (plain areas). This project will require upgrading of much of the existing road network in the Terai region and to construct some new ones. When completed, it will support development in the region’s health, agriculture, industry, and tourism sectors. The total estimated cost of the project is US$ 205 million. It will reduce the distant of travel from east to west of terai region. Currently, only 67 km Lamki-Tikapur section (27.5 km) and Seti-Bhajani section (40 km) are paved. Similarly, 58 bridges are in various stages of construction while work on 46 bridges has not yet begun. The government is likely to consider the PPP model as an option for the rapid completion of the project.

AIRPORT

Air transport is one of the most reliable modes of transportation in Nepal, owing to its difficult terrain and topography. In difficult terrain like that of Nepal, although comparatively expensive, air transport facilitates tourism and trade, as it is safe, reliable and cost effective.

International Airport
Tribhuwan International Airport (TIA) at Kathmandu is the only International Airport in the country. It serves a number of airlines connecting to international routes. In 2015, the airport handled 3.21 million passengers. TIA is currently being modernized in 4 phases. The total estimated cost for TIA’s upgrade is USD 605 million. For the phase 1, the contractual scope will include the enlargement of the existing runway, construction of new taxiways, extension of the apron, installing new lighting in the airfield, reformation of the international terminal, and installation of a new system for baggage carriage.

The Government of Nepal has signed Bilateral Air service Agreements and MOUs with 36 different countries. Bilateral air service agreements contain provisions on; the routes airlines can fly, including cities that can be served within, between and beyond the bilateral partners, also the number of flights that can be operated or passengers that can be carried between the bilateral partners and many other clauses addressing competition policy, safety and security. The bilateral agreement with India calls for the provision of 30,000 seats per week and unlimited air cargo flights between six metropolitan cities of India and Nepal. Similarly, there are 10,000 seats per week to seven Chinese cities under that bilateral agreement, with two further points, namely Osaka and Seoul.

Domestic Airports
Of Nepal’s 56 Domestic Airports including 6 Airports under construction, 32 are offering regular service. The small airports link remote areas to the international airport in Kathmandu. Nepal adopted an open sky policy. This allows private sector participants to provide domestic air service. Internal flights are managed by private operators which carry internal passengers and tourists. Domestic flights link most of the areas within the country, through two principal airports, namely Kathmandu and Nepalgunj.

Pokhara International Airport
Pokhara Regional Airport (PIA) situated in one of the most favorite tourist destination in Nepal is being upgraded to a regional airport. The construction of the new regional airport began in April, 2016 and should be completed within four years. Upon completion, the planned airport will have a 3000 meter-long runway, an apron, international and domestic terminal buildings, an air traffic control tower, a cargo terminal building along with an airport hangar and take-offs of aircraft as big as Boeing 757 and Airbus A320. The government has acquired the required land and the Environment Impact Assessment (EIA) Report for the project has been approved.

Nepal has signed a soft loan agreement with China for the funding. Out of the project’s total estimated cost of US$ 214.7 million, Having an additional international airport encourages more involvement of the private sector in airlines as it helps to bring about improvement in quality of services.

Gautam Buddha Regional International Airport (Bhairahawa)
Gautam Buddha Regional International Airport will serve as a gateway to the birthplace of Buddha. This project will transform a local, domestic airport into a regional, international one by the end of 2017. After the completion of the first phase, the new facility will have a 3,000-metre runway and the capacity to serve 760,000 passengers annually. Of the USD 90.6 million project cost, the civil works component is valued at USD 63 million.

The Asian Development Bank has provided USD 58.5 million (USD 42.75 in loans and USD 15.75 million in grants), the OPEC Fund for International Development will provide loan of USD 15 million and the Civil Aviation Authority of Nepal (CAAN) will bear the rest of the cost as counterpart funding.

International Airport at Nijgadh, Bara
The present TIA is insufficient to cater the need of growing number of passengers and airlines. Hence, another international airport at Nijgadh, Bara district, is also under consideration. The proposed Kathmandu-Terai Fast Track will connect the airport to the Kathmandu city with travel time being approximately one hour. Once operational, it is expected to increase tourism and ease transportation. The process of land acquisition, estimated to cost USD 1.2 billion has commenced. The total project cost is USD 6.7 billion (including the development of airport city). The international airport will be designed to handle 15 million passengers annually and accommodate the largest jets. According to the feasibility study prepared in April 2011, the airport would cover 3,000 hectares of land: 2,000 hectares for the airport itself and the remaining 1,000 hectares for an airport city. The government has decided to mobilize resources on its own to build this airport. Participation of more airlines will be encouraged as the flow of tourist will be high after operation of the airport. Private sector involvement for the construction, operation and maintenance of the airport will be encouraged.

RAILWAYS

The Government of Nepal intends to expand the nation’s railway network. Currently, Nepal has only 57 km of railway lines, 53 km of which are owned by Nepal Railway Company (NRC). This railway line is divided into two sections, 32 km from Janakpur in Nepal to Jainagar in India; and 21 km from Janakpur to Bijalapur, but neither section is currently operating. There is a 5 km line operating at the Inland Clearance Depot in Birgunj, Nepal which acts as a connector to the Indian Railways. For a landlocked country like Nepal, a rail network because of its low cost of operation, should be of prime importance, both for domestic and international routes. Realising the importance of railways in carrying freight and passengers, Nepal has embarked on a plan to construct railway line that runs the entire length of Nepal, from east to west. Currently, Jainagar- Janakpur- Bardibas rail link is being constructed.

When realized, the plan to connect to India from 6 different locations through EW Electric Railway (approx. 113 km) will significantly improve trade between two countries as well as in the South Asian Region. It is expected that the project to establish an electric railway in six different locations will be realized in the form of one or more PPPs.

URBAN TRANSPORT

The present urban transport system is ongested, inefficient and environmentally unfriendly. Kathmandu valley, which includes the capital city as well as other emerging cities, has a population of about 4 million and even more commuters. Therefore Kathmandu desperately needs to develop sustainable mass transit systems to address the needs for increased mobility and to reduce fuel dependence. Efficient public transportation accelerates economic growth and promotes national and international trade. The development of public transport will substantially reduce travel time, as well as the number of vehicles on road. Green energy vehicles will cut emissions, reduce imports of crude oil, improve energy security and save lives. The following projects are given the highest priority:

Important Links

Laws and Regulations

Civil Aviation Authority of Nepal Act 1996
This act ensures participation of the private sector in the development and operation of airports. Main areas covered:

Registers aircraft, as prescribed, and engraves marking;

Grants, renews and cancels, as prescribed, certificates of air worthiness to the aircraft;

Grants permission for air flights and prescribes the functions, duties and the flight and leisure time for pilots; and

Offers advice to Government of Nepal with regard to setting passenger fares and charges for carrying goods and freight.

Civil Aviation Act 1959
This act ensures the conditions relating to establishment of an airport at any place in Nepal, granting permission and prescribing fees for the same. Main areas covered:

The grant, renewal and cancelation of licenses companies providing air services, flying schools and institutes engaged in the manufacture, repair and overhauling, including the testing of aircraft and replacement parts;

Prohibitions on the use of aircraft in any part Nepal; also providing for flights only at particular times and under particular conditions;

Prohibitions and restrictions on the carrying specific substances by aircraft;

Rules on the searching of aircraft and carrying out rescue operations; and

Rules on noise reduction and environmental pollution caused by the operation of aircraft.

Motor Vehicle and Transport Management Act 1993
This act ensures that a motor vehicle which has been registered for a specific purpose may not be used for any other purpose. Main areas covered:

Classification of motor vehicles and transportation services and provides for their registration;

Rules on the importation of motor vehicles;

Rules on the issuance and renewal of driving licenses;and

Rules on the issuance of route permits for transport service providers;

Rules on the transfer of motor vehicle ownership to another party.

Public Road Act 1974
This act classifies public roads. Main areas covered:

Rules on distances prohibition related to the construction of constructing buildings, roads, etc.;

Industries related to survey and extraction of petroleum and natural gases commencing commercial operation from March, 2019 shall be provided with tax holiday for 1st 7 years and 50% exemption for the next three years.

International Airlines Operators with capital investments of USD 20 million are entitled to tax holiday for 5 years after the start of business. After that it will be entitled to a 50% tax exemption for the following 3 years. In addition, if existing operators increase their current capacity by 25% and contribute new investments so that their capital investment reaches USD 20 million, they will be granted a tax holiday on all profits earned from that increased capacity for five years and 50% exemption on such profit for additional 3 years.

Losses can be carried forward up to 12 years, (the normal provision is 7 years) for BOOT projects related to public infrastructures and petroleum industries.

Customs Duty exemption/ concession

50 % concession shall be granted on chargeable customs duty on the import of passenger vehicles and containers vehicles that are operated by electricity or battery.